In the first two portions of this series we discussed the people that are eligible for a VA loan as well as how to acquire the Certificate of Eligibility. Today's article will describe the VA Funding Fee.

A common misconception is that the VA offers home loans. This is not true. The Veteran's Administration guarantees the loan for lenders. In the event that a VA home loan is not repaid and the home is foreclosed, the VA will pay 25% of the loan to the lender.

The VA funding fee ranges from 3.3% down to 1.25%. Different factors affect which percentage rate is used. The factors can be the type of military service, whether or not this is the first time for the veteran to purchase a home, or whether or not the veteran pays a down payment.

The VA does not require a down payment and monthly mortgage insurance is also not required. To make it even better, the funding fee can be added to the overall mortgage so that the veteran can pay it over time.

Some veterans are excused from paying the funding fee. These veterans include:

• Persons that have a service connected disability and receive VA compensation for it.
• The spouse of a veteran that passed away during service.
• Any veteran that currently receives retirement pay but could be eligible for compensation due to service connected disability.
• Any veteran that previously received VA disability compensation

Any veteran that falls into one of these categories will need to complete VA Form 26-8937 as well as having your lender verify your VA Benefits.

In Part 4 of this series we offer guidelines on choosing a mortgage loan officer.

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Additonal Resources: Current VA Funding Fee (PDF) Veterans' Benefits Improvement Act of 2008VA Eligibility Requirements